Financial Literacy Resources

Have questions about financial aid, loans, borrowing, repayments, or debt management? We’ll be continuing to update this page with useful information and resources that you can use to help navigate the complexities of borrowing money—and repaying it.

Should I Consolidate My Loans?

This year, millions of students who previously borrowed their federal student loans through private banks and lenders could no longer do so. Congress eliminated the Federal Family Education Loan Program (FFELP) and moved all student loans into the Federal Direct Student Loan Program (DL). Because the DL program is less expensive for the government to run, Congress could then use the money saved to increase grant aid to needy college students as well as support other higher education priorities. As a result, your new federal student loans are now Federal Direct Student Loans, and are funded and serviced directly by the U.S. Department of Education and its authorized contractors.

Consolidate Your Federal Student Loans

Why?

Your old federal student loans are likely still owned by your old FFELP lender and servicer.

The U.S. Department of Education has assigned one of its five contractors to service your new student loan(s) and this servicer may be different from your FFELP loan servicer.

Therefore, once you enter repayment with multiple lenders and servicers, you will receive separate bills from each one, for the statutory minimum payment each month – multiplying your monthly loan repayment obligation.

Student borrowers with multiple loans at multiple lenders and/or servicers can have a higher rate of loan default because of the difficulty in tracking and managing their monthly payments.

Your interest rate and loan balance will not change if you consolidate.

When?

We recommend that you begin the consolidation process 4 months after graduating or leaving school, so that the consolidation takes place at the very end of your statutory 6 month grace period. (It can take six to eight weeks for the consolidation process to be completed.)

If you consolidate before the grace period begins or before it expires, you will lose the grace period and repayment will begin right away.

How?

If your loans are held by multiple lenders and/or servicers, consider consolidating.

If your loans are held by the same government servicer but are both FFELP and DL loans, consider consolidating.

Once you are in the fourth month of your grace period after graduating/leaving school, go to studentaid.ed.gov, the U.S. Department of Education’s Direct Consolidation Loan website. Follow directions for consolidating your federal student loans (both FFELP and DL loans) into one Federal Consolidation Loan.

Who?

For more information about the benefits of consolidating and whether or not it’s right for you, check out the Department of Education’s website at studentaid.ed.gov.

This information was prepared by the National Direct Student Loan Coalition (NDSLC), a non-profit organization comprised of schools dedicated to the continuous improvement and strengthening of the Federal Direct Loan Program.

Income-Based vs Income-Contingent Loan Repayment

Last week, we looked in detail at one key element of the breakthrough College Cost Reduction and Access Act (CCRAA)—Income-Based Repayment (IBR). But since 1994, well before passage of the CCRAA, the federal government has had a program of Income-Contingent Repayment (ICR). So what are the similarities and differences between IBR and ICR, and which will best fit your needs?

While they are calculated differently, both IBR and ICR are intended to provide you with an affordable monthly payment amount. Under both plans, any remaining loan balance is forgiven after 25 years, and payments made can count toward the 120 payments required for Public Service Loan Forgiveness.

However, there are important differences between IBR and ICR. First, IBR generally has a broader reach: it is available under both the Federal Family Education Loan Program (FFEL) and the Federal Direct Loan Program. ICR is only available under the Federal Direct Loan Program.

ICR does have an advantage over IBR when it comes to PLUS loans made to parents. Parent PLUS loans are available under both the FFEL and Federal Direct Loan Program to help parents pay a dependent child’s education expenses. IBR does not cover Parent PLUS Loans or consolidation loans that include Parent PLUS loans. While ICR also does not cover Parent PLUS loans, it does include Direct Parent PLUS loans that are part of a Federal Direct Consolidation Loan. Read more…

Top 10 Student Loan Tips for Recent Graduates

Whether you just graduated, are taking a break from school, or have already started repaying your student loans, these tips will help you keep your student loan debt under control. That means avoiding fees and extra interest costs, keeping your payments affordable, and protecting your credit rating. If you’re having trouble finding a job or keeping up with your payments, there’s important information here for you, too.

1. Know Your Loans: It’s important to keep track of the lender, balance, and repayment status for each of your student loans. These details determine your options for loan repayment and forgiveness. If you’re not sure, ask your lender or visit www.nslds.ed.gov. You can log in and see the loan amounts, lender(s), and repayment status for all of your federal loans. If some of your loans aren’t listed, they’re probably private (non-federal) loans. For those, try to find a recent billing statement and/or the original paperwork that you signed. Contact your school if you can’t locate any records.

2. Know Your Grace Period: Different loans have different grace periods. A grace period is how long you can wait after leaving school before you have to make your first payment. It’s six months for federal Stafford loans, but nine months for federal Perkins loans. For federal PLUS loans, it depends on when they were issued (see details). The grace periods for private student loans vary, so consult your paperwork or contact your lender to find out. Don’t miss your first payment!

3. Stay in Touch with Your Lender: Whenever you move or change your phone number or email address, tell your lender right away. If your lender needs to contact you and your information isn’t current, it can end up costing you a bundle. Open and read every piece of mail – paper or electronic – that you receive about your student loans. If you’re getting unwanted calls from your lender or a collection agency, don’t stick your head in the sand – talk to your lender! Lenders are supposed to work with borrowers to resolve problems, and collection agencies have to follow certain rules. Ignoring bills or serious problems can lead to default, which has severe, long-term consequences (see tip 6 for more about default.)

4. Pick the Right Repayment Option: When your federal loans come due, your loan payments will automatically be based on a standard 10-year repayment plan. If the standard payment is going to be hard for you to cover, there are other options, and you can change plans down the line if you want or need to. Extending your repayment period beyond 10 years can lower your monthly payments, but you’ll end up paying more interest – often a lot more -over the life of the loan. One important option is the Income-Based Repayment program. It can cap your monthly payments at a reasonable percentage of your income each year, and forgive any debt remaining after 25 years of affordable payments. Forgiveness may be available after just 10 years of these payments for borrowers in the public and nonprofit sectors (see tip 10 below). To find out more about Income-Based Repayment and how it might work for you, visit www.IBRinfo.org.

Private loans are not eligible for IBR or the other federal loan payment plans, deferments, forbearances, or forgiveness programs. However, the lender may offer some type of forbearance, typically for a fee, or you may be able to make interest-only payments for some period of time. Read your original private loan paperwork carefully and then talk to the lender about what repayment options you may have.

5. Don’t Panic: If you’re having trouble making payments because of unemployment, health problems, or other unexpected financial challenges, remember that you have options for managing your federal student loans. There are legitimate ways to temporarily postpone your federal loan payments, such as deferments and forbearance. For example, an unemployment deferment might be the right choice for you if you’re having trouble finding work right now. But beware: interest accrues on all types of loans during forbearances, and on some types of loans during deferment, increasing your total debt, so ask your lender about making interest-only payments if you can afford it.

If you expect your income to be lower than you’d hoped for more than a few months, check out Income-Based Repayment. Your required payment in IBR can be as little as $0 when your income is very low. See tip 4 for more about IBR and other repayment options.

6. Stay out of Trouble! Ignoring your student loans has serious consequences that can last a lifetime. Not paying can lead to delinquency and default. For federal loans, default kicks in after nine months of non-payment. When you default, your total loan balance becomes due, your credit score is ruined, the total amount you owe increases dramatically, and the government can garnish your wages and seize your tax refunds if you default on a federal loan. For private loans, default can happen much more quickly and can put anyone who co-signed for your loan at risk as well. Talk to your lender right away if you’re in danger of default. You can also find helpful information at studentloanborrowerassistance.org.

7. Lower Your Principal if You Can: When you make a federal student loan payment, it covers any late fees first, then interest, and finally the principal. If you can afford to pay more than your required monthly payment – every time or now and then – you can lower your principal, which reduces the amount of interest you have to pay over the life of the loan. Include a written request to your lender to make sure that the extra amount is applied to your principal! Otherwise it will automatically be applied to future payments instead. Keep copies for your records and check back to be sure the overpayment was applied correctly.

8. Pay Off the Most Expensive Loans First: If you’re considering paying off one or more of your loans ahead of schedule, or trying to reduce the principal, start with the one that has the highest interest rate. If you have private loans in addition to federal loans, start with your private loans, since they almost always have higher interest rates and lack the flexible repayment options and other protections of federal loans.

9. To Consolidate or Not to Consolidate: A consolidation loan combines multiple loans into one for a single monthly payment and one fixed interest rate. If this is appealing, here are some pros and cons to consider. You can consolidate your federal student loans through the Direct Loan program, and this calculator can help you figure out what your interest rate would be. For private consolidation loans, shop around carefully for a low or fixed interest rate if you can find one, and read all the fine print. Never consolidate federal loans into a private student loan, or you’ll lose all the repayment options and borrower benefits – like unemployment deferments and loan forgiveness programs – that come with federal loans!

10. Loan Forgiveness: There are various programs that will forgive all or some of your federal student loans if you work in certain fields or for certain types of employers. Public Service Loan Forgiveness is a new federal program that forgives any student debt remaining after 10 years of qualifying payments for people in government, nonprofit, and other public service jobs. Find out more at www.IBRinfo.org. There are other federal loan forgiveness options available for teachers, nurses, AmeriCorps and PeaceCorps volunteers, and other professions, as well as some state, school, and private programs (see some examples).